August milk production shows increase

Milk production increases across the U.S. as prices remain relatively strong, analysts say.

By Lee Mielke

For the Capital Press

Published on September 20, 2013 2:08PM

Lee Mielke

August milk production in the 23 major states totaled a surprisingly strong 15.7 billion pounds, according to USDA’s preliminary data, up 2.7 percent from August 2012 and marking the fifth month in a row that output exceeded that of a year ago.

The 50-state total, at 16.835 billion pounds, was up 2.6 percent from a year ago. Revisions added 29 million pounds to the original July estimate, now put at 15.7 billion pounds, up 1.3 percent from July 2012.

Checking the top players, California was up 2.7 percent, the first month since June 2012 that production exceeded that of a year ago. Wisconsin was up 1.7 percent. Idaho was down 0.7 percent, New York was up 4.2 percent, Pennsylvania up 3.5 percent and Minnesota was up 1.9 percent.

Only two states showed declines — New Mexico, which was down 1.2 percent, and Idaho.

The biggest increase was in Kansas, which was up 8.8 percent, followed by Iowa at 8 percent. Florida was up 6.9 percent and Arizona was up 5.5 percent. Michigan was up 3.9 percent and Texas was up 3.3 percent.

The next report will include milk cow numbers and output per cow, data that was suspended due to the federal budget sequestration.

One interesting perspective on the report comes from High Ground Dairy’s Eric Meyer, who points out that the 0.2 percent growth in production between July and August this year is “surprising” “and a little suspicious because it has never happened in the past. We scoured the historical milk production data and could not find a year when U.S. milk production grew in August over July.”

Supply tight on coasts

FC Stone risk management consultant Ron O’Brien pointed out in his Sept. 20 eDairy Insider Opening Bell: “Milk is currently tight on both the East and West Coasts, so even though milk production was up substantially in August compared with the previous year, demand is also likely stronger than a year ago.”

USDA’s Livestock Slaughter report estimated 266,000 culled dairy cows were slaughtered under federal inspection in August, up 15,300 from July, but 9,300 fewer than August 2012. The January-August 2013 total was estimated at 2.084 million head, 46,100 more than the same period in 2012.

Whey factor hearing

The California Department of Food and Agriculture held its hearing Sept. 12 on a proposal to adjust the Class 4b minimum pay price and whey factor. As I reported in late July, the proposal provides a temporary 46 cent per hundredweight increase in the price of Class 4b milk and an increase in the cap of the whey value from 75 cents to $1 per cwt. of milk. The petition for the hearing was filed by Western United Dairymen, California Dairies, Inc., Milk Producer’s Council (MPC) and California Dairy Campaign.

The MPC’s Rob Vandenheuvel told DairyBusiness Update that CDFA Secretary Karen Ross has 62 days to rule on the proposal. However, she also has to announce changes 10 days before implementing them, so the effective deadline is 52 days from the close of the hearing if there will be any formula change.

From a practical standpoint, Vandenheuvel said, CDFA has tried to avoid mid-month changes and implement formula changes on the start of a month. If that practice continues, an announcement is likely around Oct. 21, impacting milk sales after Nov. 1. According to the CDFA price announcement schedule, September Class 4b prices will be announced Oct. 1; October 4b prices are scheduled to be announced on Nov. 1.

Regarding the hearing, Vandenheuvel wrote in his Sept. 13 newsletter that “While producer groups and cooperatives testified in support of the proposal (despite the significant concession it represented), processors and their representatives testified one-after-another in strong opposition to the proposal, even going so far as to claim that there was never an agreement or that ‘they heard that producers had walked away from an agreement.’”

“Fortunately for producers, and unfortunately for the Dairy Institute,” Vandenheuvel wrote, “We had a paper trail (the July 8th letter) and eyewitness accounts from California Legislators. Seven members of the California Assembly and Senate took the time to come and testify at the hearing.”

Shifting to another hearing in another big dairy state; this one on raw milk sales took place in La Crosse, Wis. A press release from the National Milk Producers Federation stated: “It is disheartening that lawmakers in America’s Dairyland are even considering legislation that would damage public health by liberalizing the sale of raw milk to consumers.”

House OKs food stamp bill

In politics, the House passed a separate bill covering USDA nutrition programs, designed to cut an estimated $39 billion from Supplemental Nutrition Assistance Program (SNAP) programs over the next decade. Dairy Business Update reports that the vote on HR3102, the Nutrition Reform and Work Opportunity Act of 2013, was 217-210, with all Democrats and 15 Republicans voting against the bill. The approval provides the second piece of a House Farm Bill, but how it is incorporated into final Farm Bill negotiations remains to be seen.

Cheese prices slip

Meanwhile, mid-September cheese prices reversed three weeks of gains and the latest milk production data didn’t help matters. The cash block price closed Sept. 20 at $1.7950 per pound, down 4 1/2-cents on the week and 20 1/2-cents below a year ago when blocks hit $2 per pound. Barrel closed at $1.7675, also down 4 1/2-cents on the week and 19 1/4-cents below a year ago. No cheese was sold all week in the spot market. The AMS-surveyed U.S. average block price slipped 0.2 cent, to $1.7470. Barrel averaged $1.7916, up 3.4 cents.

Hot weather has continued to tighten the milk supply for cheese manufacturing, according to USDA’s Dairy Market News (DMN). Increased seasonal ordering has begun and plants are looking for additional milk for cheese vats. High nonfat dry milk prices have more plants looking for condensed skim to fortify vats.

Global market

Export sales are good, assisted by the Cooperatives Working Together (CWT) program which accepted 25 requests for export assistance this week to sell 2.28 million pounds of cheese and 3.12 million pounds of butter to customers in Asia, Central America, Europe, the Middle East and North Africa.

The Global Dairy Trade (GDT) auction took place Sept. 17. Product offerings from Fonterra have been declining as the cooperative’s regular orders take up surplus milk.

FC Stone’s Sept. 17 eDairy Insider Closing Bell reported that prices showed slight improvement with the trade-weighted average for all products advancing 0.3 percent. Four of nine products posted gains, led by butter up 5.2 percent to $1.774 per pound, or $1.7307, adjusted for 80 percent fat; whole milk powder up 1.1 percent to $2.3115 per pound; and cheddar cheese up 1 percent, or $1.9482 per pound.

Dairy insiders are bearish because of large inventories, according to Jerry Dryer’s Sept. 13 Dairy and Food Market Analyst, “but they have a bullish conclusion: Cheese and butter prices will go higher, driven by strong demand.”

Most notable is demand from overseas, according to Dryer. “Cheese orders are flooding into our office,” said one large manufacturer. “Orders are coming from all corners of the world,” adding with a surprised tone in his voice, “We’re getting orders from Europe.”

Butter supplies remain very tight in Europe and Oceania, Dryer reported, and this is now bringing buyers to the U.S. Another trader told Dryer that “Everyone was waiting for lower (dairy product) prices; prices pushed lower by the beginning of the new production season in the Southern Hemisphere. But the season isn’t here yet and their cupboards are bare.”

Cash butter closed Sept. 20 at $1.60 per pound, up 7 cents on the week but 29 cents below a year ago. A whopping 67 cars were sold on the week as interest grows for the upcoming holidays. FC Stone brokers tell me the highest single week sales of butter totaled 147 loads the week of Nov. 21, 2003, when butter was only trading three times a week. AMS butter averaged $1.40, up 2 1/2-cents.

Cash Grade A nonfat dry milk closed at $1.8450, up 1 1/2-cents on the week, while Extra Grade held at $1.78. AMS powder averaged $1.8048, up a penny, and dry whey averaged 57.94 cents, up 0.1cent.

“There’s strong demand for powder in the U.S.,” according to FC Stone’s Ron O’Brien. “Cheese makers are bidding for the product as strong demand for fluid and condensed milk lap up any surplus.”

The 2013-14 price forecast for corn was lowered from the August projection to $4.40-$5.20 per bushel in this week’s Livestock, Dairy, and Poultry Outlook. Yield forecasts were raised for September, and the higher production offset lower projected carry-in stocks. Forecast corn production is now a record 13.8 billion bushels. The 2013/14 forecast soybean meal price was increased in September for 2013/14 to $360-$400 per ton due to a lower yield forecast. The August Agricultural Prices report places the preliminary August price for alfalfa hay at $200 per ton, down slightly from last month and down fractionally from August 2012. On balance, feed prices are forecast to moderate next year and the milk-feed price ratio should climb in 2014, helping to boost milk production.

Price predictions

The Outlook’s milk price projections were far more bullish than Wednesday’s CME futures prices. Jerry Dryer said that the projections sounded high to him as well as to other economists he talks with. One example; USDA forecasts the First Quarter 2014 Class III price to average $17.40 per hundredweight. Dryer projects $16.50, a 90-cent difference, and points out that Class III futures were in the $16.50 range. Economists he polled predict $16.35.

Dryer said it’s very unusual for USDA to have a forecast that much more bullish than other indicators suggest but, “they seem to be hanging their hat on strong exports next year.” Dryer admits he can’t argue with that but where their forecasts conflict is milk production. Dryer expects a huge increase in milk production next year versus what USDA sees. “Lower corn prices are going to trigger way more milk than what USDA is forecasting,” he argues.

Regarding those inventories hanging over the market, particularly butter, Dryer said there are opportunities for us to export a lot of butter and he’s confounded why we haven’t.

“Those inventories should never have built,” he said. “The butter price in Europe is about $2.50 per pound and we should have been filling those orders by producing 82 percent (fat) butter instead of 80 percent butter.”

Some 4.1 billion pounds of packaged fluid milk products is estimated to have been sold in the U.S., according to DMN, down 0.5 percent from July 2012. Estimated sales of total conventional fluid products decreased 1.2 percent while estimated sales of total organic fluid products increased 15.3 percent from a year ago.

Milk prices up

Speaking of fluid milk, USDA announced the October Federal order Class I base milk price this week at $19.20 per hundredweight, up 4 cents from September, 32 cents above October 2012, the highest since December 2012, and equates to about $1.65 per gallon. The 2013 Class I average now stands at $18.55, up from $16.74 at this time a year ago and compares to $19.26 in 2011, $15.00 in 2010, and $11.09 in 2009.

Looking back to the futures, the Fourth Quarter 2013 pack average was at $17.35 per cwt. on Sept. 6, down 24 cents from the previous week. It averaged $17.67 on Sept. 13, and was averaging around $17.52 late morning Sept. 20.